A California court ruled Thursday that Uber and Lyft are not required to reclassify their drivers as employees instead of as independent contractors. The decision allows the services for riding dogs to continue to operate in the state after they threaten to withdraw.
Just hours before the verdict, Lyft had announced that service delivery in California would stop at 11:59 a.m. on Thursday. “This change would also require an overview of the entire business model – it is not a switch that can be passed overnight,” said the law firm, which went into effect Jan. 1.
Last week, a state judge ordered the companies to treat drivers as full-time employees, as required by law passed last year in California. The transport companies appealed the decision, claiming that the new law did not apply to them.
Uber had also threatened to suspend service in California if it was forced to comply with the law. “We can not hire 50,000 people overnight,” CEO Data Khosrowshahi said in a podcast earlier this week.
The ruling allows companies to continue to treat their drivers as contractors until the first hearing in the case, which is scheduled for October 13.
Pushing costs on drivers
Both companies keep their labor costs low by categorizing the drivers as contractors, who do not receive the same benefits and protection in the workplace as the full-time employees of the companies. As independent contractors, Uber and Lyft drivers are responsible for their own expenses, including taxes, and do not receive sick days, vacation time or compensation if they are injured on the job.
Classifying drivers as employees would shift many of those costs to Uber and Lyft. It is a much more expensive scheme for the companies, and no one has turned a profit so far.
California officials say treating drivers as contractors also has broader costs because companies do not contribute to the state’s declining unemployment fund on behalf of drivers.
Play hardball
California represents a substantial share of the business of both companies, and accounts for about one-fifth of all Lift rides pre-pandemic and about one-tenth of Uber’s.
The threat to close in the state represents a hardball strategy of the companies that previously rode in Austin, Texas. In 2016, the city adopted a voting measure that Uber and Lyft opposed, requiring them to fingerprint their drivers for background checks.
Two days later, Lyft and Uber left the city, a move that trusted riders and left many drivers without existence, according to Wired. The following year, the State Attorney reversed Austin’s law, and Uber and Lyft returned shortly thereafter.
The companies are using a similar approach in California, where they are streaming millions in a November voting initiative that would place drivers in a separate category of workers with some protection, but who lack full-time employee status.
Wedbush analyst Dan Ives said massive disruptions to services would irritate riders and create more public support for the voting initiative, called Proposition 22.
“In this game of high stakes poker, we believe this is a smart move by Lyft with Uber, and the court decision today was a big victory for both players,” he told investors in a note.
In an update on its threat of cancellation, Lyft thanked “the tens of thousands of drivers, riders and public officials who urged California to keep rideshare available.” A Uber spokesman said the company would “continue to advocate for the ability of drivers to work with the freedom they want.”
The Associated Press contributed reporting.
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